When Insurance Fraud Strikes, Ripples Affect UK Insurance Holders

In 2009, according to the Association of British Insurers (ABI), £9.9 billion of the net insurance premium of £30.5 billion were from car insurance premiums. According to the Annual Fraud Indicator insurance fraud nets £2.1 billion annually. For every 6 insured motorists, at least 1 files a claim each year, amounting to £20.4 million. UK insurance policyholders should be aware of what constitutes fraud and its consequences.

When an insurance employee, agent or an impostor deceives an insurance company or consumer for monetary gain, insurance fraud has been committed. Fraud can also be committed by medical staff, policyholders and others when filing a false claim or exaggerating a legitimate claim.

Falsifying documents, providing false statement, personally pocketing premiums, and selling illegitimate insurance are among the types of fraud committed by insurance agents, representatives and other insurance company impostors.

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Arson, disaster, auto accidents that did not happen or were deliberate, claims that exaggerate loss, claims that misrepresent services rendered or cost, and driving related scams are among the common types of fraud committed by those who are not insurance agents, representatives or impostors.

The consequences of insurance fraud include increased policyholder premiums. Fraudulent claims expend money unnecessarily to cover improperly reported or unnecessary repairs, non-existent property damage, property misreported as stolen, and injuries that do not exist or were not properly charged. Legal requirements dictate that premiums must be balanced to meet capital and surplus. Businesses affected by fraudulent insurance fallout also may transfer the increased costs for vehicle insurance to consumers.

Higher premiums may reduce insurance products and services demand, and reduced demand can lead to job losses. The UK insurance industry outranks all others in Europe and is 3rd in the world. Over 275,000 people are employed in the insurance industry in the UK (ABI). Delivery based businesses such as florists, caterers and taxi services may pass along costs to consumers, decrease products or services, or shut down. For those charged with criminal insurance activities, prosecution can lead to penalties, fines and imprisonment.

Insurance companies themselves have liability insurance cover to protect them against claims. For example, a fidelity bond provides casualty insurance protection for businesses which experience disreputable employee conduct. This insurance also affords cover to policyholders for fraud committed by specific persons. Errors and omissions insurance provides liability insurance for a variety of business professionals including insurance agents.